Mean-variance analysis of the newsvendor model with stockout cost

Abstract

Note: Pre-published version entitled: A Note on Mean-variance Analysis of the Newsvendor Model with Stockout Cost.We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.Department of Logistics and Maritime Studie